Yields near three-month lows on strong buying

NEW YORK: US Treasuries yields held near three-month lows on Thursday as expectations that the Federal Reserve is still months away from reducing the size of its bond-purchase program kept up strong demand for the debt.

Treasuries have rallied since data on Tuesday showed that employers added fewer jobs than expected in September, stoking fears the economy was slowing even before the government's 16-day shutdown.

Investors will be watching for any new information about Fed policy when the US central bank meets next week, though it is seen as unlikely to reduce its $85 billion a month in purchases until March.

Fed policy is seen as being very data dependant, though economic indicators over the coming month are likely to be skewed by the effects of the government shutdown, limiting insight into the actual state of the economy and to what degree the shutdown and the fight over raising the debt ceiling may have harmed growth.

"What we've been seeing since the government shutdown and debt ceiling was resolved is a desire to jump back into Treasuries," said Jason Rogan, managing director in Treasuries trading at Guggenheim Partners in New York. "Most market participants are of the mind that the Fed is on hold for the foreseeable future."

Benchmark 10-year Treasuries were last up 7/32 in price to yield 2.48 percent, near the three-month lows of 2.47 percent set on Wednesday. They have fallen from a 3.00 percent on Sept. 5, before the Fed surprised investors by keeping the size of its purchase program unchanged.

They yields have retraced about half of their increase in reaction to Fed Chairman Ben Bernanke hinting, back in May, the Fed might reduce its bond purchases by late this year.

The Fed will buy between $1.25 billion and $1.75 billion in bonds due from 2036 and 2043 on Thursday as part of its ongoing purchase program.

The government will also add $7 billion to a 30-year TIPS issue originally issued in February at an auction on Thursday. Traders expected the reopened 30-year TIPS supply to fetch a yield of 1.319 percent.

Market reaction to data on Thursday was muted. The number of Americans filing new claims for unemployment benefits fell less than expected last week as California continued to process a backlog of applications caused by computer problems.

The US trade deficit widened slightly in August as exports slipped, suggest trade will probably not be much of a boost to growth in the third quarter.